You might remember my article on “investing” in Black Lotuses and/or Szechuan sauce some time ago. Now, let’s change gears to something with (slightly) more merit to it: shares in cannabis producers.
Unless you’ve been living under a rock, you’ve probably heard of the Canadian government’s plans to legalize the sale and possession of cannabis for recreational use by July 2018. What you may not know is that cannabis has been legal in Canada for medicinal use since 2001, giving companies in the business plenty of time to establish themselves by selling to medicinal marijuana patients. Now, with the Cannabis Act expected to sail through Parliament with relative ease, these companies could see massive growth from an influx of recreational users.
But who are these companies? The largest, and most famous, is Canopy Growth Corporation (TSX:WEED – points in their favour for having a memorable ticker symbol). It currently produces around 31,000kg/year of cannabis products, primarily out of a former Hershey’s chocolate factory in Smith Falls, Ontario, with plans for expansion in the near future. They’ve got much to show for their efforts so far, including partnerships with several other companies in the industry, a specialty brand endorsed by Snoop Dogg, and a deal with Constellation Brands (best known for Corona and Modelo beer) to produce cannabis-infused beverages. Consequently, their stock price and market capitalization are the highest of any cannabis company on the TSX.
If you’re looking for something with more room to grow, you might want to look to Aurora Cannabis (TSX:ACB). While Canopy seems to focus more on branding, Aurora focuses on becoming a lean, mean, cannabis-making machine. Though a small operation for the time being, they have larger ambitions, as reflected in their in-progress Aurora Sky greenhouse near Edmonton International Airport. When finished (expected in mid-2018), the facility will occupy 800,000 square feet and churn out over 100,000kg/year of low-cost, high-quality cannabis, thanks to strict climate controls and high levels of automation – a formidable grow-op, if I’ve ever heard of one.
A third, also smaller, option, is Aphria (TSX:APH). Their expansion lags that of Canopy and Aurora, with targets of 30,000kg/year before legalization and 100,000kg by early 2019. However, they’ve shown a positive cash flow for two consecutive quarters – something other producers have yet to achieve, so far. They also grow their cannabis using only natural sunlight, positioning themselves as the most eco-friendly of the three. The major caveat to Aphria is that they also do business in the United States, where cannabis remains federally illegal, even if some states have legalized it. Because of this, the TSX could delist the company in the future, making the stock somewhat risky to play with.
If you decide to peruse the matter further, you’ll find out about more companies in the cannabis business as well. If you can’t make up your mind and you’d rather invest in all of them, you may like holding the Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ) instead. Make sure, however, that you don’t get into the really small, fly-by-night operations, unless you like gambling on penny stocks. Even with the well-established companies mentioned above, I’d advise not putting down more money than you can afford to lose, as nothing is quite certain yet in this fledgling industry.
Some disclosure: My own (limited) experience in this subject comes from buying shares in Aurora Cannabis. With money to spare, I figured, “why not?” and bought 85 shares at $3.10 each. As of writing, if I decide to sell my shares, I will have made money off of weed without ever having touched it in my life. Maybe that lack of experience will be my fatal flaw, if I go on long enough?
Of course, if you’re a seasoned investor (and you’re reading The Quill’s online exclusives why?), ignore everything I just said. Even if you’re new to investing, ignore everything I just said. Do your own research on each company and its finances, and only consider the cold, hard facts. After all, if you know something I don’t, it could be you who ends up doing better than I.